Sunday, February 24, 2013

Nautilus CEO opens up on PNG dispute

Nautilus
Mining CEO, Michael Johnston,walks shareholders through the various
points of contention between it, the PNG government and the launch of
its Solwara 1 mining project.

By KIP KEEN
Saturday
, Feb 23, 2013

HALIFAX, NS (MINEWEB) - Nautilus Minerals has concluded quasi-secret
negotiations with project partners over intellectual property rights in
the hopes of resolving what has emerged as a major point of contention
for the Papua New Guinea government in a broader dispute over the
Solwara 1 underwater mining project and the state's 30 percent equity
interest in it.Speaking in a conference call on Thursday, Michael Johnston, Nautilus
president and CEO, said that Nautilus has been willing to provide Papua
New Guinea ownership of intellectual property rights. But the problem,
as Johnston told it, was that many of the deeds covering proprietary
technology and subsea mining methods, which Nautilus and several
partners developed over the years, did not contain clauses allowing for a
third party, such as the Papua New Guinea government, to come on board
as an additional partner and owner of the intellectual property rights. Thus, Johnston described sensitive negotiations over the past
few months in which Nautilus had to go to its partners, “household
names” in the dredging business he gave as examples, to convince them to
redraw the deeds to allow the Papua New Guinea government to gain
direct 30-percent ownership of the intellectual property rights.Now,
Johnston said, Nautilus has redrawn the deeds with its partners and
delivered the new terms to the Papua New Guinea government. Johnston
said he had hoped to hear back from the government last week on its view
of the new deeds, but that Nautilus has yet to be contacted by Papua
New Guinea officials.Nonetheless,
Johnston, who said he had just returned from a trip to Papua New Guinea
on the morning of the conference call, stated that he has high hopes
about an overall resolution to the dispute. "We had a number of very
good meetings with senior politicians and I'm quite confident that we
will get resolution to this dispute in the not too distant future."

Apology to investors

While
not a secret, hitherto Nautilus had not publicly explained in any great
depth the importance of the intellectual property rights issue to the
Papua New Guinea government. Thus, responding to a question from a
private investor, Johnston was apologetic in describing why Nautilus had
needed, in his view, to be tight-lipped about negotiations with its
technology partners.“It’s always very hard,” Johnston said. “When
we’re negotiating with the other third parties involved on the IP
(intellectual property) you can imagine it’s very difficult for us
having conference calls, update calls like this. If I was to tell people
that that particular piece of IP is quite critical to us closing this agreement, you can imagine someone’s ears would prick up. “I
apologize if we’ve come across as being a little secretive, if you
like...but it has been commercially difficult for us to be able to tell
people exactly what was going on with that IP.“But
now...we believe those deeds are sorted out and we’re now quite open
about what those issues were. And, as I said, it goes right back to
those design challenges that we had in the very early stages to develop
and come up with the best system for seafloor mining. And,
unfortunately, during that process we didn’t think at the time we would
require another party’s name on the deeds.”By
getting rights to the subsea mining technology, the Papua New Guinea
government will be allowed to use the same methods as Nautilus intends
to employ at Solwara 1 on its own non-Nautilus projects. This fact
raised the question of whether Papua New Guinea could then go and
license the technology to potential competitors (assuming Papua New
Guinea consents to the new deeds). In
response, Johnston said, the terms of the renegotiated deeds required
approval from Nautilus and its partners were such a situation to arise.
Further, Johnston noted that as part of the redrawn deeds, were the
Papua New Guinea government to employ the technology on its own or
through an approved partner Nautilus would get royalty payments from any
other mining project.

30 percent participating interest

There
also remains the issue of an outstanding bill of roughly $80 million
that Nautilus maintains the Papua New Guinea government owes it for work
on the Solwara 1 project.Last year,
as the dispute between Nautilus and the Papua New Guinea government
escalated, the parties initiated a dispute resolution mechanism for
arbitration on the matter, with the Papua New Guinea government alleging
Nautilus had not met contractual obligations.Johnston
said a hearing date would be made in mid April, at which point there
could be final resolution on the outstanding bill - a key reason why
Nautilus has put the Solwara project on hold. While Johnston would not comment on the matter, some
participants on the conference call wondered if the resolution on
intellectual property rights - not in the bag yet but seemingly closer
than ever - might expedite an ultimate solution.On
this Johnston would only say that the arbitration process is “firmly
underway in parallel with discussions, without prejudice, with the
state."

Takeover, financing

Meantime,
Johnston threw cold water on the takeover and financing proposals made
by Ottawa businessmen Michael Bailey in early January that, as covered
in these pages, contained numerous discrepancies. (See: Discrepancies, denials in C$238m hostile bid for Nautilus Minerals and “Ottawa businessman shifts tactic from takeover to financing in Nautilus bid.”)“No
formal bid was ever received by Nautilus during this process,” Johnston
said. “None of our major shareholders were ever contacted. And then on
the 15th of January Mr. Bailey proposed an equity line finance facility.
On reviewing those terms it was obvious that they did not comply with
TSX or Canadian corporate laws. And the takeover just quietly seems to
have gone away.”But that quiet may
soon be broken. Bailey said in an interview Thursday that it was news to
him that Nautilus had rejected the financing proposal, which he argued
was in the best interest of Nautilus shareholders. He also maintained
that, as previously stated in a press release, he intended to go ahead
with a takeover, which he has previously claimed is fully funded by
unnamed sources, if Nautilus did not agree to the equity line financing
for $80 million."The whole situation
is exactly how it reads in the news,” Bailey said. “If they don't
proceed with the financing then we're going to proceed with the
takeover.”He then said, “We're in discussions with them about the financing."Such
discussions were not recent according to Nautilus chief financial
officer Shontel Norgate. Norgate said in an email on Friday that “We
have had no communication with Mr. Bailey since mid January.”

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